Pound US Dollar (GBP/USD) Exchange Rate Stumbles after Non-Farm Payrolls Beats Forecasts
(Updated 16:15, 02/06/23) The Pound US Dollar (GBP/USD) exchange rate fell sharply this afternoon after the latest US jobs data boosted Federal Reserve interest rate hike bets.
The non-farm payrolls figure smashed forecasts, rising from an upwardly revised 294,000 to 339,000, rather than dropping to 190,000. The data suggests that the American labour market is still running hot, which prompted fresh bets on another Fed rate hike this month.
Before the data was released, markets were pricing in a 23% chance of another rate increase at the Fed’s June meeting. This rose to around 33% after the payrolls figure was published.
The US Dollar (USD) found its gains limited, however, as other parts of the jobs report weren’t as positive. The US jobless rate rose more than forecast, climbing from 3.4% to 3.7%, the highest since October 2022.
At the time of writing, the GBP/USD exchange rate is trading at $1.2478, down over 0.3% on the day.
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Pound US Dollar (GBP/USD) Exchange Rate Stays Strong on Central Bank Expectations
The Pound US Dollar (GBP/USD) exchange rate hit a three-week high earlier this morning, as central bank policy expectations support Sterling and weigh on the ‘Greenback’. Looking ahead, high-impact US jobs data could trigger big shifts in the pairing this afternoon.
At the time of writing, the GBP/USD exchange rate is trading at $1.2531, down marginally from an overnight high of $1.2544.
US Dollar (USD) Struggling amid Dwindling Fed Bets and Risk-On Mood
The safe-haven US Dollar (USD) is struggling this morning, having weakened overnight amid a risk-on mood.
The cheery tone came as the US Senate narrowly passed legislation to lift the debt ceiling limit, averting a catastrophic economic crisis. After weeks of brinkmanship, this news soothed markets. Relieved investors sought out riskier, higher-yielding assets and jettisoned the safer ‘Greenback’.
Declining Federal Reserve rate hike bets added to USD’s downside. After dovish comments from Fed rate setters, markets are currently pricing in a 77% chance that the US central bank will leave rates unchanged at its meeting in two weeks’ time. Last week, markets saw a 64% chance that the Fed would hike.
These pressures saw the US Dollar fall to a three-week low against the Pound (GBP) in overnight trade, where the American currency continues to waver this morning.
Pound (GBP) Supported by BoE Speculation
Meanwhile, Sterling is enjoying the upbeat market mood thanks to the UK currency’s increasingly risk-sensitive status.
Bank of England (BoE) interest rate rise bets are also lending the Pound support. Markets are pricing in multiple interest rate rises over the next few meetings after last week’s surprise spike in core inflation.
While these factors are underpinning GBP, a lack of UK data today is leading to limited movement. As a result, GBP/USD is wavering close to the three-week high hit in the early hours of this morning.
GBP/USD Exchange Rate Forecast: US Non-Farm Payrolls to Beat Forecasts?
Risk appetite is likely to continue to drive the GBP/USD pairing until this afternoon, when the latest US employment data is due out.
Economists expect the non-farm payrolls figure to print at 190,000 in May – a notable slowdown from April’s 253,000. Furthermore, the US jobless rate is set to tick higher from 3.4% to 3.5%.
If the data prints as forecast, signs of slack in the American labour market could further dent Fed bets and therefore drag on the US Dollar.
However, the payrolls data has consistently surprised to the upside in recent months and yesterday’s ADP employment change report smashed forecasts, so there is a chance that today’s publication will print above expectations. If so, we could see USD exchange rates rally.
As for the Pound, UK data remains in short supply today. BoE bets could keep Sterling underpinned, but most movement in GBP/USD will likely come from the ‘Greenback’.